US Dollar Loses Ground Amid Weakening Labour Market and Inflation

The US dollar has been weakening due to weak inflation and labour market figures. The slowdown in consumer price inflation initially strengthened the greenback, but a slower pace of producer price inflation from 5.5% to 4.7% y/y weakened it further.

According to the data on Unemployment Claims, initial claims rose to 209K, fuelling concerns about the weakness of the US labour market. This has put pressure on other currencies, which have capitalised on the US dollar's retreat.

The UK economy, however, is bucking this trend with GDP growing by 0.4% q/q in April-June, representing faster economic growth than in the US. The Bank of England Chief Economist Hugh Pill suggests that this should prompt the central bank to raise its repo rate.

But it's not all good news for the pound - going forward, UK GDP is at risk of slowing, which will put pressure on it. The yen has also benefited from the dollar's weakness, pulling back from 160 and creating a haven for carry trades.